I'm 33. Stable income, few major debts. I read that I should buy stocks at my age, and then get into mutual funds later, but how late is too late?
I agree with the answers above. However, I would like to add an additional comment. If you build a portfolio of 20-30 stocks, as Gregory pointed out, you do have your own mutual fund. However, if you start holding more stocks, say 50-100 (and I've seen portfolios holding much more than that), you may want to consider using an ETF or mutual fund. You can then fill in or over weight some companies in the portfolio. The reason for this approach is the trading costs associated with holding and balancing a large portfolio. Those $4.99 or $9.99 transaction fees can really add up. One portfolio I dealt with nearly mirrored the S&P 500. That's a lot of transaction fees.
Hi: I do not know where you read that and what were the credentials of the person stating that. If you want a diversified portfolio- which is the main wayto reduce risk- you need to use mutual funds or ETF's. For example- a mutual fund or ETF cannot fall to Zero, but a stock can go bankrupt and you can lose 100% of your money.
Barry, first of all, stocks cannot go bankrupt; only companies can. And while a mutual fund or ETF cannot theoretically go to zero, if you own a diversified basket of 20-30 quality stocks, as I suggested, one stock going to zero would have a statistically small impact on the overall portfolio. If the 33 year old who asked this question had enough money in the portfolio, there is no reason he cannot own individual stocks if they are well managed. It would be no more risky than owning equity mutual funds, and done well, could offer better upside.
I would never recommend an individual investor dabble in stocks. It is very hard for even professionals to not only pick stocks but to make the timing decision of when to buy and sell. The best route for an individual investor is to take exposure to the market through pooled vehicles like mutual funds and/or exchange traded funds. We recommend taking a core-satellite approach to building portfolios where ETFs are held in the core and active money manager are added as satellites.
You first need to fill out a risk questionnaire and then determine what your asset allocation should be, that can then be expressed through different pooled investment vehicles in a global framework.
Tina, there is no simple answer to your question, but a lot depends upon the size of your account and who is managing the investments. If the account is $50-$75k or less, it might be better to be in funds or ETFs. As your account approaches $100k or larger, or if it is being professionally managed, there's no reason you can't be in individual stocks. A portfolio with 20-30 stocks is, in effect, your own personal mutual fund and no riskier than any single fund.
Quantitatively, I can't see any reason for holding individual securities at all. Have you seen the study done by financeware about 7 years ago? They tracked hundreds of securities over a three year period and concluded that owning individual securities - on average - offered investors no greater return than the index it sits in... but exhibited 3 times the volatility! There is already enough uncertainty in our world today, why increase it by trying to pick the best needles in the haystack , when you can simply buy the entire haystack with a fund or ETF? Unless you understand the risk completely and want to take it... then go for it.
Mutual funds and ETF's provide both depth and width of diversification. Unless you have a very large portfolio, it is hard to achieve the same levels of diversification on your own.
I would advise against investing directly into individuls securities b/c when you do - you are taking on unecessary risk. A basi rule of investing is: "you will not be rewarded for risk you can diversify away". There are risks in individual companies that can be diversified away; either through mutual funds, ETF's or prfessionally managed accounts. Good luck, Evan
It sounds to me like you did not understand what you read, at least I hope that is the case. The advice you quoted (to buy stocks now and get into mutual fund later) makes no sense for the simple reason that you can buy stocks through a mutual fund. A mutual fund is essentially a professionally managed portfolio of stocks and/or bonds and/or other asset classes. The answer as to whether individual stocks (or bonds) might be better for you depends on how much money you have to invest, how experienced an investor you are, how comfortable you would be managing a portfolio of individual securities or mutual funds, and how effectively you could select and manage the investments in your portfolio. Based on your question, I'm guessing that you are not an experienced investor, so you would probably be best off investing in a mutual fund or a diversified portfolio of mutual funds with different investment objectives such as US stocks, foreign stocks, emerging markets stocks, US and foreign bonds, commodities, etc. You can get a lot more diversification and professional management with less money to invest by using mutual funds. You might also consider consulting with (and possibly hiring a financial advisor) to help you determine the most effective way to invest based on your individual financial situation, risk tolerance, time horizon, etc. If he or she believes that individual stocks or bonds would be appropriate for you, they can help you select and manage them.
Tina, your question doesn't really provide enough information regarding your particular situation for any of us to give you a solid answer. However, the thing to ask yourself is, "do I have the time, the patience, or the desire to research the individual companies I'm investing in?" If the answer is no, then, I would consider either a mutual fund portfolio, or using ETF's. And, if you're not willing to do the "hard work", ie research, monitoring, etc, I'd suggest finding a local professional to work with. A professional Financial Advisor can help you with education, finding your risk tolerance, and a suitable portfolio based on your personal situation and your goals.
Best of luck...
Rod Miller, CFP, CLU, ChFC
